Scott Jensen’s proposal to eliminate income tax would benefit Minnesota’s wealthiest

Republican gubernatorial candidate Scott Jensen wants to eliminate the state income tax, which would create a $15 billion hole in the state budget each year.

Income tax accounts for just over half of state general fund revenue, meaning eliminating it would require drastic cuts to programs like schools and medical assistance, or a big increase in regressive levies like sales and property taxes – or a mix of both.

The GOP nominee did not provide details on how he would close the $15 billion annual gap in the state’s general fund if he were to eliminate income tax.

Jensen, whose campaign has not responded to interview requests, has said in social media posts and media interviews since he floated the idea that he wanted to put money back into people’s pockets.

Jensen, who is taking on DFL Gov. Tim Walz, said eliminating the income tax would keep people out of Minnesota while attracting new residents and businesses. Net out-of-state migration in 2020 contributed to stagnant population growthwhich aggravates labor shortages and can inhibit faster economic growth.

Chaska’s family doctor argues that eliminating the income tax would turn Minnesota into a Midwestern tax haven and revive the state’s economy.

Jensen has also made eliminating income taxes a centerpiece of his plan to help Minnesotans deal with inflation, which is at its highest level in 40 years.

“In a time of crisis for the average Minnesota family, why don’t we try to make sure people can keep every dollar they earn?” tweeted Jensen, who served a single term in the state Senate.

jensen was asked once whether the plan is realistic, given the gaping hole it would create in the state budget. He used the question to compare himself to Thomas Edison.

“When Thomas Edison created the light bulb, his friends told him, ‘That’s not realistic,'” Jensen said. “…Is it realistic to talk about eliminating Minnesota’s personal income tax?” I think that’s about as realistic as inventing a light bulb or a computer in my phone that took up a room that size with mainframe computers.

“If we can’t have this conversation, we’ll never solve problems with big, bold ideas,” he said.

But economists and Democrats say the plan would be a radical departure from a system that has provided valuable services like good schools, health care and infrastructure, a relatively light burden on working-class taxpayers and decades economic growth and relatively robust incomes.

Minnesota has a highly progressive personal income tax, which means higher income households have a higher tax rate as a proportion of their income compared to lower income households. Eliminating the personal income tax would disproportionately burden low-income Minnesotans while delivering huge tax cuts to the state’s wealthiest.

“Progressive income taxes are integral to having budgets that can meet the needs of all citizens, and they are also very important in ensuring racial and socio-economic equity,” said Neva Buktus, analyst of the State policies for the Institute on Taxation and Economic Policy. “Eliminating the personal income tax would be throwing it out the window completely.”

Each year, the Institute for Taxation and Economic Policy creates a ranking of state tax systems and how they promote income inequality.

The six least fair states in the United States are among the nine states with no personal income tax. Minnesota’s progressive personal income tax makes it one of the least regressive in the country – 47th out of 50. national and local taxes.

Minnesota’s progressive personal income tax has four rates, with those with the highest taxable income paying the highest percentage.

“If you’re going to eliminate income tax, there’s no way to spin it. This disproportionately benefits the wealthiest Minnesotans by far,” Buktus said.

If Jensen was successful in eliminating or phasing out Minnesota’s personal income tax, he had only a few options to replace income: raise Minnesota business taxes—unlikely given its business allies—or regressive sales and property taxes.

After personal income tax, the tax that generates the most revenue is the Minnesota sales tax. Because low-income Minnesotans spend most of their income, sales taxes hit them the hardest. Higher income households save more money, which means they are not affected by sales tax. The state sales tax is around 6.9%, and if it were to increase, low-income households would feel the greatest pain.

One way to compensate for lost revenue would be to force local governments to take on more responsibilities, which would mean higher property taxes or reduced services.

The Minnesota Center for Fiscal Excellence recently cited this potential dynamic in a report on Jensen’s proposal.

“Phasing out the income tax would ensure an end to the ‘Minnesota Miracle’ – the state’s 50-year approach to advancing geographic equity and providing local property tax relief through the through state aid – and would usher in a new era of fiscal autonomy for local governments from property taxation, local sales tax and related means.”

To fill the $15 billion hole, Jensen could also cut spending. In the past, Jensen has denounced general fund spending.

“We’re not spending those dollars on things, on issues, on initiatives that could really make a difference in the life of Minnesota — like infrastructure needs, things like that,” Jensen said in a video posted to his campaign. Facebook page in April. “No, we dump it into a general fund where politicians can take care of it.”

In fact, about 40% of the general fund goes to education. Taken together, more than 70% of the general fund goes to education and health and social services.

This means that any effort to cut spending would almost certainly result in deep funding cuts for school districts, hospitals and programs that help people with disabilities.

Cynthia Bauerly, the former commissioner of the Department of Revenue under Govs. Tim Walz and Mark Dayton, told the Reformer that Jensen’s proposal to eliminate income taxes is only half of a plan.

Minnesotans deserve details on how Jensen would fill that hole, either with massive increases in sales taxes for everyday items or with deep cuts in education, health care for the elderly and people with disabilities, training support for workers to meet business needs, infrastructure and affordable housing,” Bauerly said.

The closest recent corollary to Jensen’s plan is Kansas, which enacted deep income tax cuts in 2012. After the tax cuts, which required deep cuts in spending on education and Medicaid, economic growth in Kansas lagging behind neighboring states.

A Republican-controlled legislature then voted to raise taxes.

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